The euro rallied this morning after the eurozone's finance ministers agreed the terms of a €30bn (£26bn) bailout fund for Greece, ahead of a crunch week for the heavily indebted nation.

The European single-currency unit jumped about 1% in early trading to $1.3691 against the US dollar, its highest level in nearly four weeks. It also gained 1% against the Japanese yen and reached nearly 88.5p against the pound, as it clawed back some of its recent losses during the Greek crisis.

The relief spread to global stock markets, which hit an 18-month high. In London, the FTSE 100 broke through the 5800-mark for the first time since June 2008. Financial stocks surged in Athens, with shares in National Bank of Greece jumping by more than 10%.

The rally came after finance ministers from the 16 countries settled the details of exactly how they would lend money to the debt-ridden country, and the mechanism for making the cash available. The deal was agreed during an emergency telephone conference organised last night by officials from Spain, which holds the EU presidency.

"With today's decision, Europe sends a very clear message that no one, any longer, can play with our common currency, no one can play with our common fate," Greece's prime minister George Papandreou said last night.

The price of the loans is to be fixed with formulas used by the International Monetary Fund, with the interest rate expected to be pegged at about 5%, well below the market rates which Greece is being offered of more than 7%. That makes the facility, which Greek politicians have stressed they do not expect to use, much cheaper than the country raising its own cash in public markets which have become increasingly jittery about the possibility of Greece defaulting on its debts.

Jean-Claude Juncker, the Luxembourg prime minister and eurogroup president, said he hoped the agreement would calm the markets and help to avert the crisis facing Greece and the single currency. "This is the step of clarification the markets are waiting for," he said. "It shows there is money behind this."

Some City experts, though, warned that the euro will struggle to hold onto today's gains unless it is clear that the Greek economy will be put on a firmer footing.

"A solution can only be reached if the conditions of the package force Greece to take decisive measures," said analysts at Commerzbank.

Financier George Soros had earlier warned that the Greek situation has pushed the EU to the "brink" of disintegration. "It is 50-50 whether the eurozone breaks up," he told the Financial Times. "The damage that break up would cause is so great, that I think that as people realise it, they will pull back from the brink."

Under the plan, Greece would get €30bn from the other eurozone states in bilateral loans co-ordinated by the European commission and paid through the European Central Bank. "If the mechanism had to be activated, it would not be a violation of the no-bailout clause (in the European Union treaty) since the loans are repayable and contain no element of subsidy," Juncker said.

The amount of the individual loan from each eurozone state will be proportionate to their share in the ECB's capital. The IMF will also contribute to the package, but to what extent was not disclosed today. Talks about co-ordinating the eurozone's plan with the IMF will begin today. A further €15bn could be made available through the fund.

The Greek government maintains that it will not have to resort to using eurozone funds, and the main aim of the plan is to deter speculators who have forced up the cost of the country borrowing money in the open market. Few in the financial sector, however, believe Greece will be able to extricate itself from the current mess without help from other countries and the IMF.

Greece has to raise about €11.5bn by next month to meet its current obligations, but that is just part of the €54bn it needs to raise this year in order to cover debt repayments and its own budget needs. Greece's total debts are nearly €300bn.

Greek finance minister, George Papaconstantinou, said Greece had not asked for the plan to be activated, and still hoped to borrow on public markets rather than seeking a rescue.

"The Greek government has not asked for the activation of the mechanism, even though this is already immediately available," he said. "The aim is, and we believe we will continue, to borrow unhindered on the markets."

On Saturday, Dominique Strauss-Kahn, the managing director of the IMF, used a speech to press for much wider economic co-operation in Europe. He said that as the world economy becomes more interconnected, international policy co-ordination will be important to secure "stable, strong and balanced" economic growth.